Short-sale negotiations won't stop foreclosure

April 21, 2012

Board-certified real estatelawyer Gary M. Singer writes about the housing market at SunSentinel.com/HouseKeys each Friday. To ask him a question, go to SunSentinel.com/askpro.

Q: I listed my home for a short sale in October and recently received a contract from a buyer. I'm waiting for the bank's approval. At the end of March, I was served with foreclosure papers. How is this possible if I have a contract on the property? – Christine.

A: This happens quite often. It's a common misconception that the lender won't file a foreclosure lawsuit against you if you are negotiating a short sale or loan modification. You should expect to get served with the foreclosure lawsuit four months or so after you stop making mortgage payments. When you try to complete a short sale, it often takes a month or two to get the home under contract and 45 to 90 days to get an approval from the lender. If you fail to respond to the foreclosure suit within 20 days, you will be in default and will have waived valuable rights in defending against the lawsuit in case the short sale falls through. I recommend that you see an attorney about responding to the lawsuit.

A: No, at least not without breaking the terms of your mortgage loan. Most loans have a "due on sale" clause that states that if you transfer the property, you need to immediately pay back the full balance. It is a much better idea to try to get your bank's permission.